Stretching the TARP to Cover Health

Public Citizen Health Letter

April 2009

Health is intrinsically valuable, but health care is a means to many ends. Health care affects our collective bottom line and our way of life. Health reform is thus being increasingly seen as part of the strategy to rescue the economy at a time of constrained credit, increasing home foreclosures, rising unemployment and a declining dollar. Linking health reform to economic recovery makes sense for a number of reasons:

Health care and the economy are inextricably linked

Health decisions have economic effects, and economic decisions have health implications. Health expenses account for one of every six dollars of the U.S. gross domestic product (GDP). The health sector employs close to 15 million practitioners (10.3 percent of the labor force) and is an important consumer of goods. Health coverage has a strong ripple effect throughout the entire economy, and health care costs drive a number of other decisions. Between 2000 and 2006 health care costs increased 98 percent while overall inflation rose 23 percent.

Decisions on health coverage have an impact on job creation. Health insurance influences recruiting and hiring decisions. Business owners see rising health insurance costs as a drain on their profits, and must therefore balance providing coverage to their employees against incentives to secure their profits by offering the skimpiest coverage possible. Employers avoid hiring workers who may be heavy users of care in order to avert higher premiums based on experience. For-profit enterprises also use other strategies to offset rising insurance costs; these include offering plans with limited benefits and greater cost-sharing, union-busting, replacing full-time with part-time employees and outsourcing. The employment market is therefore becoming increasingly precarious, with fewer employers willing to make long-term investments in their labor force.

In addition, many industries are finding health care costs to be an economic drag, making them less competitive on the global market. Detroit’s “Big Three” are spending more on health care than they are on any other labor cost; this affects their comparative advantage vis-à-vis other carmakers. At present, GM and Ford spend approximately $1500 in health care costs for every car coming off their production lines, in contrast to $450 paid by BMW in Germany and a modest $150 paid by Honda in Japan. Those companies that have plants in the United States and elsewhere are faced with the reality of this difference: it costs hundreds of dollars more to manufacture a car in Detroit than for the identical car made across the lake in Canada. The difference? Private health insurance in the United States vs. Canadian Medicare.

Loss of health care is a glaring symptom of the economic downturn

Loss of coverage is rising with unemployment: a one percentage point rise in the unemployment rate increases the rate of uninsured adults by 0.6 percentage points. Put another way, every 1 percent increase in unemployment adds 1.1 million to the number of uninsured and 1 million recipients to the Medicaid and SCHIP programs.

At the same time, even the insured are facing increased out-of-pocket expenses, thereby straining their budgets. A study based on 2001 data found that medical expenses were associated with approximately half of personal bankruptcies. A recent study found that 20.9 percent of the U.S. nonelderly population experienced problems paying medical bills in 2007; fully a third of respondents reported having to juggle alternative needs when their medical bills accounted for 2.5 to 5.0 percent of their income.

Because Medicaid is countercyclical — when economic indicators go down, Medicaid rolls go up — rising need coincides with reduced resources. This “grim fiscal paradox” means that demand for Medicaid coverage soars precisely when states are least able to afford it because of dwindling tax revenues. States are hurting, and are responding by reducing the scope of benefits, tightening eligibility and cutting reimbursements to providers. These “adjustments” mean that fewer people will receive health care.

People are hurting and the monies given to financial institutions do not touch them as directly as health care benefits

Indeed, the health care sector has the potential of benefiting a very large number of people. President Obama has recognized this, stating that health reform is not “something that we can put off because we are in an emergency. [It] is part of the emergency.” Dealing with the rising numbers of uninsured is one way of benefiting those who need care while also helping employers and states in need of additional revenues. Broadening eligibility for the SCHIP and COBRA programs therefore has support from politicians and businesses. Moreover, such measures also have significant popular support: Americans rank helping the newly unemployed afford health care as a top priority, second only to helping businesses create jobs. In addition, as Jonathan Gruber has stated, “broad subsidies to make affordable health insurance available to lower-income families would improve not only the health of these families but also the health of the economy, by freeing up funds that the families could spend on other consumer goods.”

The recognition that the country is in the midst of an economic crisis with clear health implications creates an opportune moment to rethink our system of financing and delivering care. U.S. medical care is the most expensive in the world, but we are not getting a good value for our money because too large a proportion of these expenses go to the care and feeding of insurers rather than patients.

Current circumstances make single-payer health care a moral imperative that also makes good economic sense. Universal coverage together with a single-payer system reduces the sifting and sorting that accompanies a multiplicity of risk pools, which have to charge more to hedge against the volatility of small numbers. Pooling all health revenues allows the government to leverage its power as a purchaser, thereby controlling the costs of prescription drugs, as well as having the potential to control overprescribing and inappropriate use of technology by excluding care, drugs and devices that are not medically necessary, safe or effective. What’s more, a single-payer system could cover all necessary care for everyone by eliminating the middlemen that siphon off 25-30 cents of every health care dollar spent in the United States.

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